Deep Discounts & the Devaluing of Craft Beer

Happy Friday!

I hope you're doing well and gearing up for a great weekend full of good times and tasty brews. But before you clock-out, I thought I'd share some thoughts on craft beer pricing and the impact of deep sales on the consumer mindset and understanding of the value of craft beer. This is just my ramblings and thoughts on the situation, but I'd love to hear feedback from others about this, also.

A few weeks ago, a large supermarket chain in the Triangle put Oskar Blues Pinner, a popular session IPA, 6-packs on sale for $4.99.  The everyday price for this 6-pack is between $9.99 and $10.99, depending on where you shop. We sell them at The Glass Jug individually for $1.75 or in a 6-pack for $10.50.

So, $4.99 is obviously a great deal, right?

Well, yes. On the outside it looks great, but I think in the long-term it is sewing a dangerous idea for craft beer consumers. It plants the seed that there are high margins on beer, and grocery stores can afford to sell them at less than $1/beer.

The result is that consumers begin to think that bottle shops and other specialty retail stores, restaurants, and bars are charging a premium for craft beer.

But this is a false assumption.

I know, for a fact, that the distributor of Oskar Blues was recently selling Pinner at a slight discount, but even with that discount, the cost to the grocery store (and to every other bottle shop, restaurant, and bar that sells the beer) was more than the price at which the supermarket was retailing them. Supermarkets don't get a separate/different/larger discount from the distributor (that would be illegal), so I know exactly what they paid.

What that means is that this supermarket was taking an already-popular beer and selling it at a loss because they knew it would create buzz and it would get you in the door. And while they may lose money on that 6-pack, you likely picked up some veggies and detergent, and maybe a snack while you were there. And you're probably going to go back to this supermarket later, as you know they have the best prices on beer in town.

Honestly, from their standpoint, it's brilliant.

And I don't mind that some of my customers will go there and purchase it. It's a great deal! And I know my customers will come back when they want a larger variety of fresh local and craft beer, as no supermarket can (yet) compete on that front. In the short-term, this is totally kosher with me.

It's the long-term that I worry about.

It sets the precedent that beer is a commodity that can be hugely discounted. This, in turn, devalues craft beer in the mind of the consumer. We become bargain shoppers instead of purveyors of fine liquids. And that's not good for me or my store. Not only can I not cut the price of a beer in half (because you aren't also going to buy other high-margin items like pizza and detergent while you're here to make up the cost), but now I have a customer base that thinks my prices are high and we're making a huge margin.

For those that don't know, the margins on beer are fairly simple (note these are rounded averages not strict rules):
Brewery: 35%
Distributor: 30%
Retailer: 25%
Government (excise and sales tax): 10%

So, when you pay for a 6-pack of beer that costs $10, only $2.50 of that is going to the retailer (note that this varies state to state, and city to city, but it's typically 20-35% nationally, with 23-25% being typical in the RDU area). So, if you ever see a supermarket (or bottle shop, for that matter) putting a beer on sale for more than 25% off, then they're likely taking a loss on that product (so be sure to thank them for the great deal you're getting).

Any store is welcome to put beer on sale, as sales help move product and get people in the door. Heck - we always have a 15%-off shelf at The Glass Jug. But when big chain stores continually put craft beer on deep discounts, the long-term effect this has on the mentality of the craft beer consumer is possibly detrimental.

It's not good for me, or the grocery store for that matter, for the craft beer consumer to expect these sorts of sales and avoid paying full-price because they assume the margins are high and stores are typically charging a high premium for craft beer, as it is simply not true.

I'm curious to hear what others think about this. Am I bias? Probably. But I'd love to get some insight from anyone else with differing opinions on this.